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Bayer's Prescription: More Innovation, Less Administration

No science-based company can afford to take a relaxed approach to innovation and product development. For Bayer, which has the motto "Science for a Better Life," marching orders came last November to put even more emphasis on growth and innovation.

Board Chairman Marijn Dekkers announced that the company would cut 4,500 positions, including 1,700 in Germany, in order to finance investments in new pharmaceutical products, its BioScience business and expansion in emerging markets such as Asia. Bayer also will create some 2,500 new jobs, mostly in those emerging markets, by 2012.

Greg Babe, president and CEO of Bayer Corp., has already been through a similar process in North America, where he runs the MaterialScience business and has overall holding company responsibility. In 2007-8, the company cut 15% of the MaterialScience workforce.

Greg Babe: MaterialScience business experienced global recovery in 2010, with "significant growth in the developing world and specifically in China."

Babe said the company had historically high sales volume at the time, but company leaders believed it was approaching the end of a cycle and wanted to take action before a downturn.

He said what enabled his workforce to "get through that was that we immediately switched into growth mode." With a mantra of "simplify, standardize and automate," the company invested in automation for back office functions and put renewed emphasis on product development, marketing and sales.

While the Bayer Group saw sales increase 16.1% for the first three quarters of 2010 and saw EBITDA before special times climb 10.5%, Babe says the highlight of the year "has been the recovery of our material science business." That business has been up 35% in North America and is seeing significant growth in the developing world.

"We are investing very heavily in China," said Babe, noting that the MaterialScience business will invest 600 to 700 million euros annually over the next five years in Asia Pacific and in developed regions.

Babe said much of MaterialScience's recovery was tied to growth in the automotive and business machine markets. While construction is still down, he said there have been improved sales for the refurbishment of buildings, a result of efforts to improve energy efficiency.

"We will see an uptick in residential contruction," Babe predicts. "We have to. At 500,000 unit starts per year, that is a third to a half of what we really need to do just to meet the demographic growth in the U.S."

Bayer MaterialScience developed an elastic polyurethane skin for the external moving parts of the Care-O-bot 3, a service robot for the home, conceived by the Fraunhofer Institute for Production Engineering and Automation together with Bayer MaterialScience AG and other partners. The skin hardly wrinkles at all when the robot is in motion. Photo: Bayer Corp.

For Bayer HealthCare, which includes pharmaceuticals, medical devices and diabetes care, Babe said the company expects a $200 million impact to its bottom line due to health care reform and cost-saving initiatives in the developed world. That has been offset for the business by growth in emerging markets, particularly for consumer care products.

In terms of its U.S. employees, Babe said health care reform would not have a significant impact on the company's health care benefit costs, at least for 2011. He said a new national wellness program for employees, which went through a two-year pilot program, should help to offset some of the costs.

As a longtime manufacturing executive, Babe is a proponent of a national manufacturing policy for the United States. He said the country needs a "full, holistic policy on manufacturing that then can serve as the roadmap for what you do legislatively and from a regulatory perspective."

He said the government needs to address the high corporate tax rate, implement financial reform in a way that promotes lending, invest in transportation and infrastructure, and promote science and engineering education.